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SC loan moratorium case HIGHLIGHTS: Next hearing on December 14

SC loan moratorium case HIGHLIGHTS: Next hearing on December 14

SC loan moratorium case HIGHLIGHTS: Next hearing on December 14
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By CNBCTV18.com Dec 9, 2020 2:32 PM IST (Updated)

Here are the latest updates from the SC hearing on the loan moratorium case today:

The Supreme Court will continue hearing in the loan moratorium or interest waiver case now on December 14. A bench of Justices Ashok Bhushan, R S Reddy and M R Shah had on Tuesday heard the case and was informed by the Centre that if it were to consider waiving interest on all the loans and advances to all categories of borrowers for the six-month moratorium period announced by RBI in view of COVID-19 pandemic, then the amount foregone would be more than Rs 6 lakh crore. If the banks were to bear this burden, then it would necessarily wipe out a substantial and a major part of their net worth, rendering most of the lenders unviable and raising a very serious question mark over their very survival, it said. The top court is hearing a batch of pleas of various bodies including from real estate and power seeking sector-wise relief in view of the COVID-19 pandemic.

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The RBI had in March announced a moratorium on repayment of term deposits for three months, which was later extended till August 31. The move was expected to give borrowers more time to clear payments of EMIs amid the economic fallout of the lockdown, without being classified as NPAs. However, under the RBI circular, the interest chargeable during the moratorium period of three months would be added to the loan installments that fall after the prescribed period. It is this interest burden that is being contested in the plea.
Here are the latest updates from the SC hearing on the loan moratorium case today:
  • Supreme Court has set December 14 as the next hearing date for the loan moratorium case.
  • Mehta said that so far as big borrowers are concerned, the RBI appointed an expert committee under the Chairmanship of K V Kamath which segregated various sector borrowers into 26 categories and gave parameters within which banks were directed to restructure the accounts.
  • Mehta said that though it may not be possible to give the exact percentage of the borrowers who have not availed of the moratorium and have deposited installments in time; approximately such class would be more than 50 percent. Mehta said that granting relief to distressed small borrowers, the Centre decided that the relief on waiver of compound interest during the six-month moratorium period shall be limited to the most vulnerable category of borrowers who availed loan up to Rs 2 crore. He said that RBI in its circular dated August 6 classified big borrowers (having the loan account of Rs 1500 crores and above0 and rest as not big borrowers.
  • Mehta also pointed out the sector-specific relief measures taken by the Centre for the small and mid-sized business/MSMEs including from sectors such as restaurants and hotels. He said the Centre has promulgated the emergency credit-linked guarantee scheme (ECLGS) of Rs 3 lakh crore providing additional credit at a lower rate of interest, with a 100 percent government guarantee and no fresh collateral. The scheme has been extended with higher financial limits to twenty-seven COVID-19 impacted sectors including restaurant and hotel sectors, he added.
  • Mehta said that in the Indian banking system for every loan account there are about 8.5 deposit accounts and highlighted the various financial reliefs already granted by the Central government. He said that going any further may be detrimental to the overall economic scenario, the economy of the nation or the banking sector may not be able to take the financial constraints resulting therefrom.
  • Referring to the affidavit filed by Indian Banks Association on September 25, SG Tushar Mehta said that the State Bank of India has stated that the interest amount from borrowers during six months moratorium works out to be Rs 88,078 crore (approximately) whereas the interest payable to the depositors during the said period works out to be Rs 75,157 crore (approximately).
  • On Tuesday, Solicitor General Tushar Mehta appearing for the Centre informed the SC-bench that if the interest is waived on all the loans and advances for the moratorium period, with regard to all classes and categories of borrowers, the amount to be foregone would be more than Rs 6 lakh crore. Giving an illustration, he said that in the case of State Bank of India alone (which is the largest bank in the country), a waiver of six months' interest would completely wipe out over half of the bank's net worth which has accumulated over nearly 65 years of its existence. Continued payment of interest (including interest on interest) to depositors is not only one of the most essential banking activities but is a huge responsibility that can never be compromised as most of the depositors are bound to be small depositors, pensioners etc. surviving on the interest from their deposits, he said in his written submissions.
  • Govt on Rate Cut Transmission: Between Feb and Oct, RBI ensured repo rate cuts of 115 bps. The weighted average lending rate has fallen by 88 bps; Interest rates have fallen below 7 percent for fresh home loans.
  • Govt cites S&P Report claiming lukewarm response to restructuring scheme: Lukewarm response to restructuring scheme. S&P does not expect any large corporate debt restructuring. Corporate earnings have recovered after the Covid shock.  Emergency Credit Linked Guarantee Scheme 2.0 is in place to extend 3 lakh cr of emergency credit to small, medium enterprises will help avoid restructuring.  SBI expects a restructure of less than 1 percent of the loan book, PNB expects a restructuring of less than 3 percent of the loan book.
    • Govt opposes further relief to Power Gencos, Developers; Says they suffer from legacy issues: Most petitioner associations have legacy issues, their issues not due to the COVID-19, but due to pre-COVID factors. Stress in these sectors not on account of the pandemic. Whatever could be done for the power sector, has been done. On account of the govt relief, even during the COVID-19 power plant did not shut down even for a single day during lockdown. Have also provided sector specific relief for stressed areas under the Kamath Committee. Have also sought govt impetus to affected MSME.
    • Centre Warns SC against interest waiver: If the interest is waived off on all types of loans, the amount forgone would be over Rs 6 lakh crore; due to this interest waiver was not even considered. It will wipe out a major part of banks' net worth, will raise serious questions about the survival of banks. For SBI alone, interest waiver will wipe out half of the banks' net worth. Continued payments to depositors critical, for every borrower there are about 8.5 depositors.
    • Power Gencos to Supreme Court: 1. RBI to allow restructuring of funds borrowed from LIC, AIFs, FPIs, Foreign Banks. RBI currently allows restructuring only by banks, NBFCs, Cooperatives. 2. Restructuring should be subject to a request by borrowers, not subject to the discretion of the lender. 3. Restructuring requires logistical exercises such as a forensic audit. Requirements such as these should be dispensed with. 4. Lenders should be restrained from taking coercive measures such as the invocation of bank guarantees. 5. Loans restructured under the June 2019 framework were under a monitoring period of 12 months, excluded from Aug 6 circular relief proposed by RBI.
    • The apex court bench assembles and the hearing in the interest waiver case begins.
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